German support for Brexit concessions boosts pound

News of Brexit negotiation support for the UK from within the European Union pushed the pound much higher yesterday.

The pound is extending gains this morning. GBP/EUR has risen to €1.1300, while GBP/USD is up to US$1.3258. GBP/AUD has climbed to A$1.7580, GBP/NZD to NZ$1.9495, and GBP/CAD to C$1.6990.

Keep reading to find out why Germany was at the centre of gains for the pound and losses for the euro yesterday…

What’s been happening?

The pound was on strong form yesterday after a group of German business leaders and economists announced they would lobby governments in the European Union to provide greater concessions to the United Kingdom during the Brexit negotiations.

New Deal for Britain claims that the European Union is losing a key ally through Brexit, and that the split will have a negative impact on the Eurozone economy.

They intend to put pressure on EU officials to be more lenient with the UK during the ex-negotiations and granted a more favourable exit deal, with better terms on immigration being one of their key aims.

This show of support from the inside has emboldened markets and raised hopes that the EU can be made to part from its hard line attitude during the exit talks. The claims of New Deal for Britain somewhat undermine the facade of nonchalance displayed by EU leaders regarding the risks of a ‘Hard Brexit’.

Meanwhile, the euro was slumping after German Chancellor Angela Merkel’s coalition talks with rival parties collapsed.

Merkel has been trying to negotiate with the Green Party and the Free Democratic Party (FDP) since the September elections saw her grip on the Bundestag drastically weakened. A failure to agree on issues such as tax, the environment, and immigration saw the FDP walk away, leaving Germany facing an uncertain political future - one that may include snap elections next year.

The GBP/USD advance was made easier by the fact that the US data calendar was completely devoid of impactful releases yesterday.

The US dollar is being kept afloat by strong bets of monetary tightening next month, but the pound had a much more immediate reason to rise.

What's coming up?

Today’s government borrowing figures could upset the pound if they show a widening deficit, given that the budget is being delivered tomorrow.

Markets want to see steps taken to tackle the UK’s productivity problem, but this sort of investment goes against the grain of Tory austerity, especially if the monthly overspend has grown larger recently.

The Eurozone data calendar offers very little today, although this is likely to be a moot point as markets will be fully occupied by the political situation in Germany. Signs that Angela Merkel has been able to coax the FDP back to the negotiating table would help support the euro.

US existing home sales figures for October are set for release this afternoon, and the only thing to keep markets occupied until Federal Reserve chair Janet Yellen’s speech late tonight.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Reaz Rahman
Senior Dealer

Reaz, our Senior Currency Dealer, joined us in January 2015. Reaz draws on his detailed knowledge of the foreign exchange markets to help customers to choose the right service and time to transfer.